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Trade liberalization and product R&D in a differentiated duopoly

Hong Hwang, Yi-Shan Hsueh and Cheng-Hau Peng ()

International Review of Economics & Finance, 2018, vol. 56, issue C, 34-38

Abstract: This paper employs an intra-industry trade model with one firm in each country to examine the impact of trade liberalization on firms' incentives to engage in product R&D. We show that trade liberalization may decrease a firm's product R&D if the marginal willingness to pay for the firm's innovation from its home consumers is higher than that from its foreign consumers. This negative relationship between trade liberalization and R&D investments is opposite to the standard result in the literature where the firms engage in process R&D.

Keywords: Product innovation; Trade liberalization; Marginal willingness to pay (search for similar items in EconPapers)
JEL-codes: F12 F13 L43 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:reveco:v:56:y:2018:i:c:p:34-38